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Commentary By Josh Barro

Newt Gingrich on the GSE Model

Economics, Cities, Cities Infrastructure & Transportation

This interview has been floating around the web a little bit, but I don’t think it’s gotten quite the attention it deserves. Back when Newt Gingrich was serving as Freddie Mac’s in-house historian, he did a Q&A with them, in which he sang the praises not just of the housing GSEs, but of government-sponsored enterprises in general (emphasis added):

“Q: A key element of the entrepreneurial model is using the private sector where possible to save taxpayer dollars and improve efficiency. And you believe the GSE model provides one way to use the private sector.

Gingrich: Some activities of government – trash collection is a good example – can be efficiently contracted out to the private sector. Other functions – the military, police and fire protection – obviously must remain within government. And then there are areas in which a public purpose would be best achieved by using market-based models. I think GSEs provide one of those models. I like the GSE model because it provides a more efficient, market-based alternative to taxpayer-funded government programs. It marries private enterprise to a public purpose. We obviously don’t want to use GSEs for everything, but there are times when private enterprise alone is not sufficient to achieve a public purpose. I think private enterprise alone is not going to be able to help the Gulf region recover from the hurricanes, and government will not get the job done in a very effective or efficient manner. We should be looking seriously at creating a GSE to help redevelop this region. We should be looking at whether and how the GSE model could help us address the problem of financing health care. I think a GSE for space exploration ought to be seriously considered – I’m convinced that if NASA were a GSE, we probably would be on Mars today.

Certainly there is a lot of debate today about the housing GSEs, but I think it is telling that there is strong bipartisan support for maintaining the GSE model in housing. There is not much support for the idea of removing the GSE charters from Freddie Mac and Fannie Mae. And I think it’s clear why. The housing GSEs have made an important contribution to homeownership and the housing finance system. We have a much more liquid and stable housing finance system than we would have without the GSEs. And making homeownership more accessible and affordable is a policy goal I believe conservatives should embrace. Millions of people have entered the middle class through building wealth in their homes, and there is a lot of evidence that homeownership contributes to stable families and communities. These are results I think conservatives should embrace and want to extend as widely as possible. So while we need to improve the regulation of the GSEs, I would be very cautious about fundamentally changing their role or the model itself.”

Let’s compare that to how Newt Gingrich characterized his interactions with Freddie Mac in last month’s CNBC debate:

“And my advice as a historian, when they walked in and said to me, “We are now making loans to people who have no credit history and have no record of paying back anything, but that’s what the government wants us to do,” as I said to them at the time, this is a bubble. This is insane. This is impossible. It turned out, unfortunately, I was right and the people who were doing exactly what Congresswoman Bachmann talked about were wrong. And I think it’s a good case for breaking up Fannie Mae and Freddie Mac and getting much smaller institutions back into the private sector to be competitive and to be responsible for their behavior.”

This is a reminder that Newt Gingrich doesn’t really have a deep commitment to limited government. But it also reflects a serious problem with the “ownership society” position that many conservatives (not just Newt Gingrich) were taking in the mid-2000s. If you try to extend homeownership “as widely as possible,” that will involve getting people to buy homes even when renting is a more financially prudent decision. I just hope that the recognition that homeownership isn’t right for everybody will survive past the current crisis.

This piece originally appeared in National Review Online

This piece originally appeared in National Review Online